Method of Administering an Investment Fund

ABSTRACT

A method of administering an investment fund using a computer. The method includes the steps of creating shares for sale, providing a managed distribution schedule identifying a number of payments to be provided during each of consecutive periods, providing an investment strategy for investing in assets to provide funds sufficient to meet the managed distribution schedule, issuing a share to an investor in exchange for funds received from the investor, investing the received funds according to the investment strategy, calculating the value of each of the payments to be provided according to the managed distribution schedule in a period to the investor, and providing each of the payments to the investor during the period. Mutiple embodiments relate to methods for calculation and sourcing of each payment.

CROSS REFERENCE TO RELATED APPLICATIONS

This application is a Continuation of U.S. application Ser. No.12/208,097, filed Sep. 10, 2008, and a Continuation of U.S. applicationSer. No. 12/209,603, filed Sep. 12, 2008, both of which are incorporatedherein by reference in their entirety for all purposes, and both ofwhich claim priority from and incorporate by reference U.S. ProvisionalApplication No. 60/993,746, filed Sep. 14, 2007. U.S. application Ser.No. 12/208,097 also claims priority from and incorporates by referenceU.S. application Ser. No. 12/105,994, filed Apr. 18, 2008.

BACKGROUND OF THE INVENTION

Many investors arrive at retirement with substantial assets accumulatedover years of disciplined saving and prudent investing. Often, theseinvestors are concerned about how best to use their assets to meetmonthly retirement expenses, while at the same time preserving theirassets for heirs, philanthropy, or other purposes. Traditionally, theseinvestors have had three basic options for generating retirement income:

1. A “planned withdrawal program,” in which an investor gradually spendsa limited portion of assets over a set period, with the remaining assetsinvested for long-term retirement goals.

2. A “guaranteed income option,” in which an investor turns over assetsto an insurance company and purchases a fixed immediate annuity thatprovides guaranteed income for life.

3. A “spend only the income strategy,” in which an investor spends onlythe dividend and interest income generated by his or her retirementportfolio, leaving the principal intact.

SUMMARY OF THE INVENTION

According to one aspect, the present invention includes an embodiment ofa method of administering an investment fund. The method includes thesteps of creating a plurality of shares in the investment fund for sale,providing a managed distribution schedule identifying a number ofpayments to be provided during each of a plurality of consecutiveperiods, providing an investment strategy for investing in assets toprovide funds sufficient to meet the managed distribution schedule,issuing at least one share to an investor in exchange for funds receivedfrom the investor, investing the received funds according to theinvestment strategy, calculating the value of each of the payments to beprovided according to the managed distribution schedule in a period, andproviding each of the payments to the investor during the period.

In one embodiment, a managed distribution schedule includes a formulafor calculating a value for each of the payments in the period. Theformula specifies that the value of each payment equals 1/nth of apredetermined percentage of a designated value corresponding to one ofthe plurality of shares. The number, n, equals a number of payments tobe made in the period, and the designated value equal a trailing NetAsset Value (NAV).

Another embodiment includes the steps of creating a plurality of sharesin the investment fund for sale, providing a managed distributionschedule identifying a number of payments to be provided during each ofa plurality of consecutive periods, issuing at least one share to aninvestor in exchange for funds received from the investor, investing thereceived funds in assets including cash, securities, derivatives andother investments, and providing payments to the investor in a periodaccording to the managed distribution schedule. The managed distributionschedule includes a formula for calculating a value for each of thepayments. The formula specifies that the value for each payment in theperiod equals 1/nth of a predetermined percentage of a designated valuecorresponding to one of the plurality of shares. The number, n, equals anumber of payments to be made in the period, and the designated valueequals a trailing Net Asset Value (NAV).

The managed distribution schedule may include a formula for calculatinga value for each of the payments in the period. The payments providedaccording to the managed distribution schedule are funded from one ormore of net income of the assets, accumulated undistributed net profitsresulting from a sale of the assets excluding long-term capital gains,and return of capital.

In a further embodiment of the method of making distributions from theinvestment fund, the method further includes a step of designating afirst portion of each of the provided payments as being sourced from thenet income and a second portion of each of the provided payments asbeing sourced from the return of capital after the payments have beenprovided in the period. An additional distribution corresponding to theperiod and being funded from the net long-term capital gains and returnof capital is also provided.

BRIEF DESCRIPTION OF THE FIGURES

The invention is understood from the following detailed description whenread in connection with the following figures:

FIG. 1 illustrates an investment fund comprising an investmentportfolio, in accordance with an embodiment of the present invention;

FIG. 2 illustrates a method of constructing and managing the investmentfund illustrated in FIG. 1 to be in compliance with Sections 19(a) and(b) of the Investment Company Act of 1940, as amended, and Rules 19a-1and 19b-1 promulgated thereunder, in accordance with an embodiment ofthe present invention;

FIG. 3 illustrates a flow diagram of a method of constructing andmanaging an investment portfolio of the fund illustrated in FIG. 1, inaccordance with an embodiment of the present invention;

FIG. 4 illustrates an exemplary plot of the probabilities of variousinvestment funds of maintaining real spending power after 20 yearsversus the probabilities of payments made by such funds declining by 5%from one year to the next, in accordance with an embodiment of thepresent invention;

FIG. 5 illustrates a capital markets model employed by the methodillustrated in FIG. 3, in accordance with an embodiment of the presentinvention;

FIG. 6 illustrates exemplary distributions of outcomes generated bysimulations of the capital markets model illustrated in FIG. 5 forselected asset classes, in accordance with an exemplary embodiment ofthe present invention.

FIG. 7 illustrates an exemplary worksheet of exemplary earnings,distributions, and sources of such distributions for an embodiment ofthe investment fund illustrated in FIG. 1, in accordance with anembodiment of the present invention; and

FIG. 8 illustrates an exemplary Rule 19a-1 Notice that may be providedby an exemplary embodiment of the fund illustrated in FIG. 1 to itsshareholders, in accordance with an embodiment of the present invention.

DETAILED DESCRIPTION OF THE INVENTION

Retirees generally have two basic needs in retirement funds: (1) regularmonthly payments to help meet retirement expenses, and (2) thepreservation of retirement savings for future use.

Referring now to FIG. 1, there is illustrated an investment fund 100comprising an investment portfolio 110 and a plurality of shares 120.Portfolio 110 comprises a plurality of securities and other investments(collectively referred to herein as “securities”). The securities maycomprise any of stocks (e.g., U.S. stocks or foreign stocks, such asemerging-market stocks), bonds, commodity futures, inflation-indexedsecurities (e.g., Treasury Inflation Protected Securities (“TIPS”)),shares in real estate investment trusts (“REITs”), hybrid securities,currencies, options on securities or securities indexes, futurescontracts, options on futures contracts, credit default swaps, totalreturn swaps, forward foreign currency agreements and other derivatives.The securities in portfolio 110 may further comprise shares in one ormore funds, such as stock funds, funds that track the Europe,Australasia, and Far East (“EAFE”) Index, funds that track the LehmanAggregate Bond Index, commodities funds, money market funds, equitymarket neutral funds, absolute return funds, etc. In embodiments of fund100 where portfolio 110 includes shares in one or more investment funds,fund 100 may be described as a “fund of funds.” It is understood thatthe descriptor, “fund of funds,” however, does not exclude fund 100 fromowning other types of securities directly. Thus, fund 100 may becharacterized as a “fund of funds” even while owning stock, bonds,futures, etc. directly in portfolio 110.

In the embodiment of fund 100 illustrated in FIG. 1, portfolio 110includes one or more U.S. stocks, one or more emerging market stocks,one or more shares in one or more EAFE Index funds, one or more sharesin one or more Lehman Aggregate Bond Index funds, cash, one or moreTIPS, one or more shares in one or more REITs, one or morecommodity-linked instruments, one or more shares in one or more equitymarket neutral funds, and one or more shares in one or more absolutereturn funds. Fund 100 is formed and managed by a fund administrator(not illustrated). As described below, payments to shareholders ofshares 120 of fund 100 are provided on a periodic basis according to amanaged distribution schedule.

The management of fund 100 and the distribution of payments to theshareholders of shares 120 of fund 100 may implicate importantsecurities law considerations under the Investment Company Act of 1940,as amended. Section 19(a) of the Investment Company Act of 1940, asamended (herein “the Act”), and Rule 19a-1 promulgated thereundertogether require investment funds, such as fund 100, to provideshareholders with contemporaneous written statements identifying thesource of distributions to shareholders if a portion of thedistributions is from a source other than the fund's net income. Section19(a) of the Act states, in relevant part, that “[i]t shall be unlawfulfor any registered investment company to pay any dividend, or to makeany distribution in the nature of a dividend payment, wholly or partlyfrom any source other than—(1) such company's accumulated undistributednet income, determined in accordance with good accounting practice andnot including profits or losses realized upon the sale of securities orother properties; or (2) such company's net income so determined for thecurrent or preceding fiscal year; unless such payment is accompanied bya written statement which adequately discloses the source or sources ofsuch payment.”

Rule 19a-1 specifies that every written statement (herein a “Rule 19a-1Notice”) made pursuant to Section 19 by or on behalf of a fund must bemade on a separate paper and clearly indicate what portion of thepayment per share provided to shareholders is made from the followingsources: (1) net income for the current or preceding fiscal year, oraccumulated undistributed net income, or both, not including in eithercase profits or losses from the sale of securities or other properties;(2) accumulated undistributed net profits from the sale of securities orother properties (except that a fund may treat as a separate source itsnet profits from such sales during its current fiscal year); and (3)paid-in surplus or other capital source, collectively referred to hereinas “return of capital.” The purpose of the Rule 19a-1 Notice is toafford shareholders adequate disclosure of the sources from which thepayments are made so that the shareholders will not believe that afund's portfolio is generating investment income when, in fact,distributions are paid from other sources, such as shareholder capitalor capital gains.

Section 19(b) of the Act and Rule 19b-1 promulgated thereunder togethergenerally prohibit funds from distributing more than one “capital gaindividend” (as defined in Section 852(b)(3)(C) of the Internal RevenueCode (herein the “Code”)) with respect to any one taxable year of thefund. Section 852(b)(3)(C) of the Code states, in relevant part, that “acapital gain dividend is any dividend, or part thereof, which isdesignated by the company as a capital gain dividend in a written noticemailed to its shareholders not later than 60 days after the close of itstaxable year . . . .”

Rule 19b-1 has two exceptions. The first exception permits a capitalgain dividend “made pursuant to [S]ection 855 of the Code which issupplemental to the prior distribution with respect to the same taxableyear of the [fund] and which does not exceed 10% of the aggregate amountdistributed for such taxable year.” The second exception permits “oneadditional distribution of long-term capital gains, as defined in theCode, with respect to any one taxable year of the [fund], whichdistribution is made, in whole or in part, for the purpose of notincurring any tax under [S]ection 4982 of the Code. Such additionaldistribution may be made prior or subsequent to any distributionotherwise permitted by paragraph (a) of [Rule 19b-1].”

Referring now to FIG. 2, there is illustrated a method 200 ofconstructing and managing fund 100 in accordance with Sections 19(a) and19(b) of the Act and Rules 19a-1 and 19b-1 promulgated thereunder, inaccordance with an exemplary embodiment of the present invention. Method200 begins with a step 210 of establishing a managed distribution policyof fund 100 at the inception of fund 100. More specifically, in step210, fund 100, or more specifically the administrator of fund 100,establishes a managed distribution policy (also called a “paymentschedule”) to determine how payments of fund 100 are to be calculated,sourced and distributed to shareholders in fund 100 over the life offund 100. Method 200 continues to a step 220 in which the administratorof fund 100 establishes investment objectives, investment strategies andperformance targets for fund 100 to allow fund 100 to achieve itsmanaged distribution policy.

The investment objectives, investment strategies, performance targets,and the managed distribution policy of fund 100 determine how fund 100is structured and managed. Generally, the administrator chooses theinvestment objectives, investment strategies, performance targets, andmanaged distribution policy to allow fund 100 to operate to the extentpossible without consuming capital.

Several exemplary embodiments of fund 100 are described herein. In eachof the several embodiments of fund 100, the specifics of the investmentobjectives, investment strategies, performance targets, and manageddistribution policies differ as follows:

In a first embodiment of fund 100 (herein “Fund A”), the administratorof fund 100 seeks to generate total returns sufficient to sustain amanaged distribution policy while providing inflation protection andcapital appreciation over the long term. The managed distribution policyof Fund A is based on an annual distribution rate equal to 3%. Thus, theinvestment objective of Fund A is to seek to make monthly distributionsof cash while providing inflation protection and capital appreciationover the long term, and the investment strategy is tailored to achievethis investment objective.

In a second embodiment of fund 100 (herein “Fund B”), the administratorof fund 100 seeks to generate total returns sufficient to sustain amanaged distribution policy while providing inflation protection andcapital preservation over the long term. The managed distribution policyof Fund B is based on an annual distribution rate equal to 5%. Thus, theinvestment objective of Fund B is to seek to make monthly distributionsof cash while providing inflation protection and capital preservationover the long term, and the investment strategy is tailored to achievethis investment objective.

In a third embodiment of fund 100 (herein “Fund C”), the administratorof fund 100 seeks to generate total returns sufficient to sustain amanaged distribution policy while preserving capital over the long term.The managed distribution policy of Fund C is based on an annualdistribution rate equal to 7%. Thus, the investment objective of Fund Cis to seek to make monthly distributions of cash while providing capitalpreservation over the long term, and the investment strategy is tailoredto achieve this investment objective.

Although method 200 indicates the flow of the method progressing fromstep 210 to step 220 (the flow being indicated by the arrow extendingfrom step 210 to step 220), it is contemplated that steps 210 and 220may be performed in any order. Thus, the administrator of fund 100 mayestablish a managed distribution policy for fund 100 at its inception instep 210 and then develop investment objectives, investment strategiesand performance targets for fund 100 in step 220 to satisfy the manageddistribution policy, or the administrator of fund 100 may establishinvestment objectives, investment strategies and performance targets forfund 100 in step 220 and then develop a managed distribution policy instep 210 to make distributions resulting from the investments of fund100. Furthermore, although method 200 indicates that the investmentobjectives, investment strategies and performance targets are developedin one step (step 220), it is contemplated that the investmentobjectives, investment strategies and performance targets may each bedeveloped in separate sub-steps.

The Managed Distribution Policy of Fund 100

The managed distribution policy of fund 100 generally provides for theperiodic distribution of a targeted amount of cash (payments) to be madeto shareholders during each of a plurality of consecutive periods basedon (1) a distribution rate specified in the managed distribution policyof fund 100 and (2) prior performance of fund 100. The manageddistribution policy provides for a number of payments to be providedduring each of the consecutive periods and contemplates that thepayments are fixed and are of equal amounts in each of the periods,unless there are one or more additional distributions made sometimeduring a period. As described below, the distributions per share varyfrom period-to-period based on the prior performance of fund 100.

The managed distribution policy sets forth rules for calculating thepayments to be made in each of the consecutive periods for each share120 of fund 100. More specifically, the managed distribution policyspecifies a formula that determines how dollar amounts of the paymentsare to be calculated in the future based on the distribution rate andthe prior performance of fund 100 and how such payments are to bedistributed in the future. Due to market volatility, fund 100 does notspecify, at the inception of fund 100 or at any time thereafter, dollaramounts to be provided for the payments in the consecutive periods. Inother words, fund 100 does not guarantee any amounts of payments to bedistributed.

Payments to be provided during each of the consecutive periods in thefuture are to be calculated during each of the consecutive periods or ina period immediately preceding each of the consecutive periods. In oneexemplary embodiment, the calculations during the consecutive periodsare to be completed at the beginnings of the consecutive periods.

In an exemplary embodiment of the managed distribution policy, the priorperformance of fund 100 is quantified by a trailing net asset value(herein “NAV”) of each share 120 in fund 100. The trailing NAV for eachshare in fund 100 is calculated by averaging the NAV of each share infund 100 over a predetermined period of time preceding the time ofcalculation. Because the NAV is calculated for a predetermined period oftime preceding the time of calculation, the NAV is referred to as a“trailing NAV.”

In this exemplary embodiment, the managed distribution policy providesfor the calculation of per-share payments made by fund 100 to be basedon the trailing NAV (in addition to the distribution rate). Morespecifically, the managed distribution policy provides that the amountof each payment to be made in each of the consecutive periods is to becalculated to equal 1/nth of a predetermined percentage of the trailingNAV of each share in fund 100, as represented in the following formula:

Distribution per Share=Predetermined Percentage×Trailing NAV,   (1)

n

where the value “n” is to equal the number of payments to be made ineach of the consecutive periods defined by the payment schedule and the“predetermined percentage” is the distribution rate identified in themanaged distribution policy. The predetermined percentage (distributionrate) may, for example, be one of 3%, 5%, or 7%, respectivelycorresponding to embodiments of fund 100 as Fund A, Fund B, and Fund C.

Because the payments of fund 100 are actually calculated in the future,i.e., at some time after the inception of fund 100, and are based onprior performance of fund 100, e.g., the trailing NAV of each share infund 100, the distributions per share may vary from one of theconsecutive periods to another as the performance, e.g., daily NAV, offund 100 varies over time.

In an exemplary embodiment of fund 100, each of the consecutive periodsidentified by the managed distribution policy is a fiscal year, and themanaged distribution policy identifies that the payments made duringeach of the fiscal years are to be made monthly. In such an embodiment,the managed distribution policy directs that the monthly distributionsper share are to be calculated at the beginning of each fiscal year byaveraging a per-share NAV of fund 100 over a prior three-year period offund 100 in order to increase the relative predictability and relativestability of the distributions of fund 100 to shareholders fromyear-to-year. A modified version of the formula is to be used until fund100 has established three years of history. Thus, at the beginning ofthe first year of fund 100, each of the monthly payments to be providedin the first year is to be calculated using an initial per-share valueof fund 100; at the beginning of the second year of fund 100, each ofthe monthly payments to be provided in the second year is to becalculated using averaged daily per-share NAVs of fund 100 over at leasta portion of the first year of fund 100; and at the beginning of thethird year of fund 100, each of the monthly payments to be provided inthe third year is to be calculated using averaged daily per-share NAVsof fund 100 over at least a portion of the first and second years offund 100. At the beginning of the fourth year and subsequent years offund 100, each of the monthly payments to be provided in the fourth andsubsequent years is to be calculated using averaged daily per-share NAVsof fund 100 over the three years previous to the year for which thecalculations are to be made.

In another exemplary embodiment of fund 100, the distributions per sharemay be calculated in view of a hypothetical account of a hypotheticalshareholder of fund 100 assumed to hold shares in fund 100 purchased atinception. For purposes of the calculation of per-share payments made byfund 100, the hypothetical account is assumed to experience the samedistributions as the accounts of actual shareholders of fund 100 andthat no further purchases or redemptions are made for the hypotheticalaccount except by way of the automatic reinvestment of any and alladditional distributions in additional shares in fund 100. Morespecifically, in this exemplary embodiment of fund 100, the manageddistribution policy provides that the amount of each payment to be madein each of the consecutive periods is to be calculated to equal 1/nth ofa predetermined percentage of the average daily value of thehypothetical account over a specified period of time, as represented inthe following formula:

$\begin{matrix}{{{{Distribution}\mspace{14mu} {per}\mspace{14mu} {Share}} = {\frac{{Predetermined}\mspace{14mu} {Percentage}}{n} \times \frac{\begin{matrix}\begin{matrix}{{Average}\mspace{14mu} {daily}\mspace{14mu} {account}\mspace{14mu} {balance}} \\{{of}\mspace{14mu} {hypothetical}\mspace{14mu} {shareholder}}\end{matrix} \\{{over}\mspace{14mu} {prior}\mspace{14mu} {period}}\end{matrix}}{X}}},} & (2)\end{matrix}$

where the value “n” is to equal the number of payments to be made ineach of the consecutive periods defined by the payment schedule, the“predetermined percentage” is the distribution rate identified in themanaged distribution policy, and the value “X” is the number of sharesin the hypothetical account. The predetermined percentage may be one of3%, 5%, or 7%, respectively corresponding to embodiments of fund 100 asFund A, Fund B, and Fund C.

In a variation of the exemplary embodiment described in the previousparagraph, each of the consecutive periods identified by the manageddistribution policy is a fiscal year, and the managed distributionpolicy identifies that the payments made during each of the fiscal yearsare to be made monthly. In this variation, the managed distributionpolicy directs that the monthly distributions per share are to becalculated at the beginning of each fiscal year by averaging the valueof the hypothetical shareholder account over a prior three-year periodof fund 100 in order to increase the relative predictability andrelative stability of the distributions of fund 100 to shareholders fromyear-to-year. A modified version of the formula is to be used until fund100 has established three fiscal years of history. Thus, in the firstfiscal year of the fund, the monthly per-share distribution is based onthe initial account balance of the hypothetical shareholder; in thesecond fiscal year, the average daily account balance of thehypothetical shareholder over the first fiscal year (or the portion ofthe first fiscal year for which the fund was in existence) is used todetermine the monthly distribution per share; and in the third fiscalyear, the average daily account balance of the hypothetical shareholderover the first two fiscal years is used to determine the monthlydistribution per share. Finally, in the fourth and subsequent fiscalyears, the average daily account balance of the hypothetical shareholderover a prior three-fiscal-year time period will be used to determine themonthly distribution per share.

In a variation of the exemplary embodiments of fund 100 discussed abovein which the managed distribution policy sets forth monthly payments tobe made over a plurality of consecutive fiscal years, the manageddistribution policy calls for the distribution of a targeted amount ofcash to be provided to the shareholders of fund 100 on or about the 15thcalendar day of each month in a calendar year. The monthly distributionper share for fund 100 in a given calendar year is calculated as ofJanuary 1 of that year. The managed distribution policy contemplatesthat the payments to be provided during a calendar year are fixed duringthat year, unless there are one or more additional distributions withrespect to the same calendar year of fund 100, which would be coincidentto the calendar year. The monthly distributions per share for anycalendar year, however, are still expected to vary from year-to-yearbased on the performance of fund 100 during prior years.

Finally, it should again be emphasized that the distribution rates(predetermined percentages) of Funds A, B, and C differ and, therefore,their managed distribution policies differ. The managed distributionpolicies of Funds A, B, and C specify monthly payments that are to beprovided during consecutive calendar years. The monthly payments of FundA are calculated to equal 1/12th of 3% of the trailing NAV of each sharein fund 100 at the time of calculation; the monthly payments of Fund Bare calculated to equal 1/12th of 5% of the trailing NAV of each sharein fund 100 at the time of calculation; and the monthly payments of FundC are calculated to equal 1/12th of 7% of the trailing NAV of each sharein fund 100 at the time of calculation.

Developing an Investment Portfolio and Managing Fund 100

Continuing with the description of method 200, after establishing themanaged distribution policies, investment objectives, investmentstrategies and performance targets in steps 210-220, processingcontinues to a step 230 in which the administrator of fund 100 developsinvestment portfolio 110 based on quantitative analysis and professionaljudgment, and then continues to a step 240 in which the administratormanages fund 100 and particularly portfolio 110.

Generally, in step 230, the administrator of fund 100 (1) identifieseligible asset classes and investments for fund 100, (2) establishesstrategic asset allocation ranges specifying minimum and maximumlong-term allocations to eligible asset classes and investments of fund100 and (3) establishes a short-to-intermediate term asset allocationtarget for fund 100. The administrator's asset allocation target governsthe administrator's day-to-day investment decisions for fund 100 made instep 240.

In step 230, to identify eligible asset classes, the administrator usesquantitative analysis and professional judgment in an attempt to combinecomplementary asset classes across the risk/reward spectrum. Theadministrator may combine complementary asset classes with historicalcorrelations to one another that are less than a predetermined thresholdset by the administrator in order to generate positive long-term totalreturns through economic and market conditions with a level of risk lessthan a threshold determined by the administrator. While managing fund100 in step 240, the administrator need not maintain a fixed assetallocation policy for fund 100 (although the administrator may adoptsuch a policy), and the exact proportion of each asset class orinvestment may be changed to reflect shifts in the administrator's riskand return expectations. In other words, while managing fund 100 in step240, the administrator is not tied to an asset allocation policydeveloped in step 230. In summary, the administrator's goal for fund 100is to construct a broadly diversified portfolio that achieves theinvestment objective of fund 100.

Method 200 continues to a step 250. In step 250, the administrator offund 100 calculates, in January of each year, the amounts to bedistributed by fund 100 pursuant to the managed distribution policy offund 100 and in accordance with applicable requirements under the Act.Each month prior to the declaration of the monthly distribution of fund100, the administrator of fund 100 determines the year-to-date netinvestment income, net short-term realized gains, and net long-termrealized gains of fund 100, including adjustments for prior year capitalloss carryforwards, if any, and compares these amounts to the previousdistributions of fund 100, in order to determine earnings and profitsavailable for distribution. Based upon this information and on theexpected magnitude of the planned distribution, the administratorestimates the likely sources of the upcoming distribution for Rule 19a-1purposes: (1) net income for the current or preceding fiscal year, oraccumulated undistributed net income, or both, not including in eithercase profits or losses from the sale of securities; (2) accumulatedundistributed net profits, e.g., short-term capital gains, from the saleof securities; or (3) return of capital. The administrator does notestimate any of the monthly distributions as being from realizedlong-term capital gains, which will be distributed only at the end ofthe fiscal year, as described below. The administrator also estimatesthe cumulative character of the distributions of fund 100 (including theupcoming distributions) based upon the then-current information of fund100 and will communicate that information to shareholders along with thedeclared distributions.

In step 250, the administrator arranges for each monthly distribution byfund 100 to be accompanied by a Rule 19a-1 Notice that sets out thesources of the particular distribution, from net income, accumulatedrealized short-term capital gains or nontaxable return of capital, aswell as the sources on an aggregate basis of all distributions to date.Once complete, the administrator provides the Rule 19a-1 Notice and thedistributions to the shareholders of fund 100 in step 250. After step250 is complete, method 200 may return to step 240 in which theadministrator may alter the asset allocation strategy of fund 100 usingtechniques described above.

It is the policy of fund 100 that none of its twelve regularly scheduledmonthly distributions (excluding, for the avoidance of doubt, anyadditional distributions) be sourced from undistributed long-termcapital gains. If the estimate by the administrator of the cumulativecharacter (or sources) of the distributions of fund 100 is subsequentlyascertained to be inaccurate in a significant amount, in a step 255,fund 100 will correct the estimate through an additional Rule 19a-1Notice provided to the shareholders of fund 100 or through disclosure inthe first shareholder report following discovery of the inaccuracy.

As fund 100 distributes payments to shareholders in step 250 over thecourse of a fiscal year, the administrator of fund 100 ensurescompliance with Section 19(b) and Rule 19b-1 in a step 260 byaccumulating all realized long-term capital gains generated by fund 100during the fiscal year. At the end of the fiscal year, in a step 270,the administrator distributes the accumulated realized net long-termcapital gains through a single “capital gain dividend,” with thepossibility of one or more additional capital gain dividends thereafterwith respect to the same fiscal year to the extent permitted by Section19(b) and Rule 19b-1 and to the extent otherwise required or advisableto ensure compliance with the Act. After step 270 is complete, method200 may return to step 240 in which the administrator may alter theasset allocation strategy of fund 100 using techniques described above,or method 200 may return to step 250 in which fund 100 distributesfurther payments to shareholders.

More specifically, in the last month of the fiscal year, in step 260,the administrator of fund 100 calculates and arranges for fund 100 todeclare an additional distribution that is sufficiently large todistribute all of the net long-term capital gain, if any, for the entirefiscal year, as well as any other, if any, accumulated but undistributednet income or short term capital gain for the entire fiscal year. Theadministrator arranges for the relevant portion of the additionaldistribution to be designated in the annual report of the fund as acapital gain dividend for tax purposes pursuant to Section 852(b)(3)(C)of the Code to the extent of the amount of such net long term capitalgain (and assuming the portion of the distribution treated as a dividendfor tax purposes is at least equal to such amount). The administratoralso arranges for the additional distribution to also include asufficient amount of return of capital such that each of thedistributions of fund 100 for the year (including the additionaldistribution) are designated as having proportionally the samepercentage of nontaxable return of capital. Maintaining the sameproportion in the additional distribution as designated in thedistributions for the year is desirable in order to ensure that no netlong-term capital gain is reallocated for Section 19(b) purposes to anyother distribution made during the year. In step 270, the additionaldistribution is provided to the shareholders of fund 100. It is thepolicy of fund 100 that 100% of each additional distribution beautomatically reinvested in additional shares of the fund, thoughshareholders who timely request it may instead receive cash that is notautomatically reinvested in additional shares.

The administrator may increase the return of capital component of theadditional distribution by an amount equal to the sum of (i) the capitallosses realized by the fund during the 12th month, (ii) alldistributions received during the year that may be subject toretroactive reclassification or deferral after year end, and (iii) anadditional amount of return of capital so that the ratio of (i) and (ii)to (iii) matches the ratio of distributed income and/or gain to returnof capital for the other twelve distributions and the balance of theadditional distribution. This methodology is designed to ensure that thefund fully distributes all net long-term capital gain in the additionaldistribution, even where the fund in retrospect has more net capitalgain as of year-end than was determinable at year-end.

If the administrator determines at a later date that the additionaldistribution of fund 100 was insufficient to distribute completely allof the net long-term capital gain of fund 100 for the entire calendaryear, then the administrator arranges, in step 260, for fund 100, ifsufficient undistributed earnings and profits are available fordistribution, to declare another additional distribution (a“supplemental distribution”) during the subsequent taxable year in orderto distribute the balance of its net capital gain. This distribution ismade in step 270 in accordance with Rule 19b-1 and is made for thepurpose of not incurring any tax under Section 4982 of the Code. It isthe policy of fund 100 that 100% of each supplemental distribution beautomatically reinvested in additional shares of the fund.

If sufficient undistributed earnings and profits are not available for afund to make a supplemental distribution, then the administratorarranges, in step 260, for fund 100 to re-designate all or part of thetaxable portion of the 12th distribution by fund 100 for the fiscal yearas a capital gain dividend in an amount sufficient for fund to betreated as having distributed all of its net capital gain for the entirecalendar year. If such re-designation would not be sufficient in amountto cause all remaining net capital gain to be distributed for the entirecalendar year, the administrator arranges for fund 100, pursuant toSection 852 of the Code, to retain the undistributed net capital gains,pay the required tax, and file with the Internal Revenue Serviceappropriate forms to pass-through the capital gains and the tax to theshareholders of fund 100. In that case, the administrator arranges forfund 100 to recalculate on a cumulative basis the sources of itsdistributions from net income, from realized gains, and from nontaxablereturns of capital. The administrator arranges for the final characterof such distributions to be reflected in the fund's Form 1099-DIV andincluded in the annual report of fund 100.

Referring now to FIG. 3, there is illustrated exemplary method 300 forconstructing and managing investment portfolio 110 of fund 100, inaccordance with an exemplary embodiment of the present invention. Inother words, method 300 illustrates steps 210-240 in more detail.

Generally, to produce an investment portfolio that has a relatively lowprobability of year-to-year decline and/or a relatively high probabilityof maintaining real (rather than nominal) distributions, developing anasset allocation strategy involves dynamically allocating assets acrossa broadly diversified selection of investment opportunities. Theadministrator uses quantitative analysis and professional judgment in anattempt to combine complementary asset classes and investments acrossthe risk/reward spectrum. The goal is to construct a broadly diversifiedportfolio that achieves the investment objective of fund 100. The multi-asset investment strategy of fund 100 is more likely to achieve theinvestment objective of fund 100 than would a conventional fixedallocation among stocks, bonds, and cash. As noted above, fund 100 maychoose from any of the following types of assets or investments (orothers): stocks, bonds, cash, money market investments, long/shortmarket neutral investments, absolute return investments,commodity-linked investments, inflation-linked investments, and realestate investments. The administrator of fund 100 constructs the assetallocation strategy to determine the proportions of asset classes andinvestments that reflect the administrator's evaluation of theirexpected returns and risks as an integrated whole.

As noted above, fund 100 may invest in both traditional assets (such asstocks, bonds, and money market funds) and non-traditional investments(such as absolute return strategies and alternative asset classes, likecommodities). The selection and weighting of asset classes andinvestments is determined by the asset allocation strategy of fund 100constructed using method 300. It is contemplated that asset allocationstrategies are flexible. Initially, fund 100 may obtain equity and fixedincome exposure through index funds, generate long/short market neutralreturns through specialized funds designed for this purpose andgenerally characterized as equity market neutral funds, make absolutereturn investments directly or through various financial arrangementsincluding shares in a specialized fund designed for this purpose, andgain exposure to the returns of a broad-based selection of commodityfutures through futures contracts, commodity-linked swap agreements,commodity-linked structured notes or other commodity-linked derivatives.The asset allocation strategy of fund 100 may change over the life offund 100 to alter these exposures.

Method 300 begins with a step 310 of generating models of asset classesbased on historical investment and macroeconomic behavior. Morespecifically, step 310 provides historical data for asset classes andoutputs the data, which data includes asset class and investment returnaverages, volatility, and correlations between the modeled asset classesand investments. In a step 320, the administrator reviews theseoutputted data and makes any adjustments as necessary to the models ofthe asset classes. In a step 330, projections of the modeled assetsclasses and investments are generated to estimate future performance ofthe asset classes and investments.

Processing continues to a step 340 in which method 300 receives variousinputs from the administrator of fund 100. Step 340 comprises sub-steps340A, 340B, and 340C. In sub-step 340A, the administrator specifies anexact payout pattern or spending strategy for fund 100. An example of anexact payout pattern or spending strategy is the managed distributionpolicy discussed above. In an exemplary embodiment, for the limitedpurpose of selecting candidate investment portfolios, the distributionsof fund 100 under its managed distribution policy and each of thecandidate investment portfolios are assumed, in sub-step 340A, (1) to bepaid in four equal installments at the end of each quarter of each year,and (2) to sum to 5% of the average balance at the end of the mostrecent twelve quarters, with the initial year's payments totaling 5% ofthe initial purchase.

In sub-step 340B, the administrator determines candidate portfolios ofinvestments and/or asset allocation strategies to be modeled, as well asany hard constraints on the investment allocations for portfolio 110.The administrator selects viable candidate portfolios based on aconsideration of a wide range of strategic inputs, which may includesome combination of the following factors (or others): the priorperformance of fund 100; value at risk and expected shortfall;volatility; macroeconomic factors; current and expected marketconditions; cash flows; estimates of changes in the spreads between theexpected returns of eligible asset classes and investments; historicaland expected correlations between and among asset classes andinvestments; quantitative modeling of the likelihood that a proposedcombination of assets and investments will achieve the investmentobjective of fund 100; and the results of stress tests.

Finally, in sub-step 340C, the administrator determines the quantitativeobjectives to be optimized for candidate portfolios for considerationfor selection as portfolio 110 of fund 100. Examples of quantitativeobjectives that the administrator may specify in sub-step 340C include:median simulated real geometric mean return over 30 years, mediansimulated real geometric mean growth in simulated distributions over 30years, median simulated nominal geometric mean growth in simulateddistributions over 30 years, median simulated real geometric mean growthin simulated distributions over 30 years, estimated probability of a 5%year-to-year decline in simulated nominal payments, estimatedprobability of 3 consecutive years of a 5% or more decline in simulatednominal payments over a 30-year history, estimated probability ofmaintaining nominal value of simulated nominal payments over a setperiod, and estimated probability of maintaining real value of simulatednominal payments over a set period.

Continuing with the description of method 300, in a step 350, theadministrator uses a capital markets simulation model to identifycandidates for portfolio 120. Particularly, the model uses the datasupplied by the administrator in sub-steps 340A-C and the resultsprovided by step 330 to optimize construction of portfolio 110 acrossmultiple asset classes and investments. In an exemplary embodiment, thecapital markets simulation model is a Monte Carlo simulation that runs alarge number of cycles on each possible portfolio, with each runsimulating long-term future performance. While particular models may beconsidered superior to others and the overall performance of fund 100may be highly dependent on the robustness of the model used, the presentinvention is not limited to or dependent upon the use of any particularmodel. The results, i.e., the modeled portfolios and asset allocations,of the capital markets simulation model are outputted and plotted in astep 360.

Referring now to FIG. 4, there are illustrated the plotted results ofthe capital markets simulation model provided in step 350 and plotted instep 360. Each portfolio is plotted by its probability of maintainingreal spending power after 20 years and its probability of a 5% declinein payments from one year to the next. Optimal portfolios lie along theupper frontier of plot 400, as they have the greatest probability ofmaintaining real spending power after 20 years given a particularprobability of a 5% decline from one year to the next. Although notillustrated, it is also contemplated that plot 400 may plot probabilityof maintaining nominal spending power after 20 years rather than realspending power.

Continuing again in method 300 illustrated in FIG. 3, after the resultsof the capital markets simulation model are plotted in step 360,processing continues to a step 370. In step 370, the administratorchooses an investment portfolio from the modeled results plotted byprobability of year-to-year decline versus probability of maintainingreal distributions greater than a predetermined probability. Theadministrator therefore selects an investment portfolio from the upper“efficient” frontier of plot 400, from candidate investment portfolioshaving a relatively low probability of year-to-year decline and/or arelatively high probability of maintaining real distributions.Embodiments in which the administrator considers probabilities ofmaintaining nominal spending power rather than real spending power arealso contemplated.

Finally, in step 380, the advisor seeks to manage fund 100 consistentwith a variety of statistical and compliance-based risk managementcontrols and procedures. As the administrator manages fund 100 accordingto the calculated asset allocation strategy in step 380, theadministrator of fund 100 may alter the asset allocation strategy at anytime to incorporate additional asset classes or investments intoportfolio 110 or to change the weightings of asset classes andinvestments represented in portfolio 110 in an effort to reduce overallrisk or improve risk-adjusted returns consistent with the investmentobjective of fund 100. The administrator of fund 100 may use the capitalmarkets simulation model described above to generate revisedforward-looking asset class and investment performance expectations foroptimization of portfolio 110 at any time during the life of fund 100.More specifically, the administrator may model a plurality of additionalcandidate investment portfolios and choose a reallocated investmentportfolio from the modeled results that is expected to have a relativelylow probability of year-to-year decline and a relatively highprobability of maintaining real or nominal distributions. Thus, theadministrator may re-optimize the asset allocation strategy of fund 100,and therefore the asset allocation of portfolio 110 of fund 100, at anytime.

The managed distribution policy of fund 100 is not supported by any formof guarantee, line of credit, credit support or any other form offinancing intended to guarantee distributions or investment performanceto shareholders. Instead, fund 100 makes distributions in accordancewith its managed distribution policy, with the result that distributionsare likely to vary over time. Accordingly, investors in fund 100 may seetheir year-to-year distributions grow or decline roughly in tandem withaverage fund performance over a trailing 3-year period (subject to theterms and conditions of the managed distribution policies). The resultsof the administrator's investment models, however, indicate that fund100, and therefore the accounts of the investors in fund 100, are notlikely to run out of money over time. Of course, fund 100 may experiencelosses, in which case the automated payout mechanism may cause investorsto consume a corresponding portion of their principal over time. Otherembodiments of fund 100 in which fund 100 does guarantee that themanaged distributions will be met are contemplated.

As noted above, fund 100 may be embodied as one of Funds A-C. Each ofFunds A-C is targeted to appeal to a different set of investors,although some overlap is possible. It should be noted that Funds A-C mayattract assets from outside of the retirement channel, given the focusof Funds A-C on regular cash flows and principal preservation.

Fund A is expected to have the greatest appeal to retirement investorswho seek only a modest current payout from their assets, but who wish tosee their payouts and capital increase over time. Fund A is expected tosustain a managed distribution policy with a 3% annual distributionrate. Compared to the other subject funds, Fund A has a high probabilityof generating growth in both capital and payouts that exceeds inflation.If successful, Fund A should provide long-term capital appreciation.

Fund B is likely to appeal to retirement investors who want to balance aneed for a current payout from their assets with a desire to maintainthe purchasing power of their payouts and capital over the long term.Fund B is expected to sustain a managed distribution policy with a 5%annual distribution rate, while providing inflation protection andcapital preservation over the long term.

Fund C is likely to appeal to retirement investors who require a greaterpayout level to satisfy current spending needs. Fund C is expected tosustain a managed distribution policy with a 7% annual distributionrate. Although the payouts and capital of Fund C are not expected togrow at a rate that keeps pace with inflation, Fund C does seek topreserve the “nominal” (or original) value of invested capital over thelong term.

Although specific embodiments are described herein comprising Fund A,Fund B, and Fund C, it should be understood that the funds may beoffered with any incremental annual distribution rate that has areasonable probability of providing the targeted returns. Furthermore,although several exemplary embodiments of fund 100 are described aboveas computing payments based on the average daily account balance ofhypothetical shareholder over three calendar years, different timeperiods may also be used.

Referring now to FIG. 5, there is illustrated a worksheet 500 forexemplary distributions provided by fund 100 for each share in the fundaccording to method 200. More specifically, worksheet 500 provides abreakdown of sources of earnings and other cash flow of fund 100,monthly distributions of fund 100, and estimated breakdowns of themonthly distributions and an additional distribution for purposes ofcomplying with Section 19(b) of the Act. In an exemplary embodiment,fund 100 generates worksheet 500 in step 260 of method 200 to ensurecompliance with the Act. The information provided in worksheet 500corresponds to a particular, hypothetical calendar year of fund 100.

Portion 510 of worksheet 500 identifies the earnings of fund 100 in eachmonth of the calendar year and the sources of such earnings for eachshare in fund 100. Portion 510, for example, indicates that fund 100earns $0 in net income and realized $0 of long-term capital gain inJanuary; $10 of net income and $0 of long-term capital gain in February;$150 of net income and $0 of long-term capital gain in March; $20 of netincome and $200 of long-term capital gain in April; etc. As illustratedin exemplary worksheet 500, fund 100 earns $800 of net income in thecalendar year and realizes $400 in long-term capital gains over thecalendar year.

Portion 520 of worksheet 500 identifies the regular monthlydistributions of fund 100 provided over the calendar year. Asillustrated, fund 100 distributes $100 per share in each month of thecalendar year, per step 250 of method 200, and makes an additionaldistribution (a 13th distribution) in the amount of $600 sourced in partfrom long-term capital gains and in part from return of capital, persteps 260 and 270 of method 200. As indicated in worksheet 500, theadditional distribution is reinvested in additional shares.

Portion 530 indicates the estimated breakdown of the regular monthlydistributions as they were made. More specifically, portion 530indicates the sources of the regular distributions indicated in portion520 as such distributions were made. For example, portion 530 indicatesthat 0% of the January distribution is sourced from net investmentincome, as fund 100 earns no net income in January (see portion 510),and 0% is sourced from realized long-term capital gains, as fund 100, asa matter of policy, does not source any of the monthly distributionsfrom realized long-term capital gains. Portion 530 indicates that 5% ofthe total distributions of fund 100, as of the February distribution, issourced from net income earned by fund 100 and that 95% of the totaldistributions is sourced from return of capital. In other words, as ofthe February distribution, $10 of the total $200 distributed is sourcedfrom net income, and the remaining $190 is sourced from return ofcapital. Portion 530 indicates the breakdown of all of the regularmonthly payments based on year-to-date earnings. As can be seen inportion 530, by year end, 67% of all monthly payments are sourced fromnet income of fund 100, and 33% is sourced from return of capital.

Because fund 100 realized $400 of long-term capital gains over the year(see portion 510), worksheet 500 indicates, in a portion 540, that fund100 makes an additional distribution in December to distribute all ofthe long-term capital gains as a capital gains dividend. To ensure that67% of the additional distribution is sourced from capital gains, so asto maintain the same proportion of return of capital to totaldistribution in the additional distribution as made over the year in themonthly payments, fund 100 returns $200 of capital in the additionaldistribution. Thus, 67% of the additional distribution is sourced fromlong-term capital gains, and 33% is sourced from return of capital. Theadditional distribution is reinvested in shares of fund 100, and theshares are distributed to the shareholders, unless shareholders timelyrequest receipt of their portion of the additional distribution in cash.

It should be understood that, although method 200 is described inconnection with Sections 19(a) and (b) and Rules 19a-1 and 19b-1, theinvention is not specific to any particular code or rule, nor is themethod necessarily associated with any tax management purpose. Rather,the method sets forth a mechanism for distribution, where possible, ofall net long-term capital gains in a special distribution, intended forreinvestment in the portfolio, having the same ratio of nontaxablereturn of capital as in the previous distributions for the period. Itshould also be understood that any of the steps referred to hereinrelating to method 200 may be implemented via a computer. Further, itshould be understood that although the distribution method is describedherein with reference to a particular fund embodiment, the distributionmethod may be appropriate for use in connection with any fund embodimenthaving multiple distributions in a period that would benefit from makingall net long-term capital gains in a special distribution, intended forreinvestment in the portfolio, having the same ratio of nontaxablereturn of capital as in the previous distributions for the period.

Referring now to FIG. 6, there is illustrated an example of a Rule 19a-1Notice 600 of fund 100. Notice 600 illustrates exemplary January,February, March, April and May distributions of another embodiment offund 100.

As noted above, in an exemplary embodiment of method 300, the simulationperformed in step 350 is a regression-based Monte Carlo simulation. Suchan embodiment of method 300 uses the regression-based Monte Carlosimulation to advantage over conventional simulation tools, such ashistorical time-pathing and basic Monte Carlo simulation.

Historical time-pathing consists of generating future return scenariosbased on an asset's historical returns over a chosen time period. Sincethis historical analysis is restricted to the observed historicalsequence outcomes, each scenario simply starts at a different date. Alimitation with this approach is that it can exclude extreme-tailedpossibilities (rare events never recorded in the historical data samplethat could have occurred).

In basic Monte Carlo simulation, return scenarios are drawn from aselected probability distribution of outcomes, rather than replicatingchronological segments of historical series. In essence, an asset'ssimulated return at any point in time will equal its long-term averagereturn plus or minus “noise,” the magnitude of which is dictated by thehistorical volatility of the asset. Although popular among certaininvestment professionals, basic Monte Carlo techniques have their ownlimitations. Often, basic Monte Carlo tools assume that asset returnsare uncorrelated with the assets' own past returns (i.e., not seriallycorrelated returns) and that correlations with other asset returns inthe portfolio are fixed (i.e., fixed cross-correlations among assetreturns).

Referring now to FIG. 7, there is illustrated a capital markets model700, in accordance with an exemplary embodiment of the presentinvention. Capital markets model 700 is used to perform steps 310, 330,and 350 of method 300.

Capital markets model 700 is based on the theoretical notion that thereturns of various asset classes reflect the compensation investorsreceive for bearing different types of systematic risk (or beta). Toreasonably forecast the potential distribution of future asset returns,capital markets model 700 is designed to identify the primarymacroeconomic and financial risk factors and how they influence assetreturns over time.

Using a long span of monthly financial and economic data, capitalmarkets model 700 estimates a dynamic statistical relationship betweenrisk factors and asset returns. In an exemplary embodiment, capitalmarkets model 700 uses regression-based Monte-Carlo simulation methodsto project these relationships in the future.

The return-forecast portion of capital markets model 700 involves threefundamental processes, as illustrated in FIG. 7: (1) a core module 710,(2) an attribution module 720, and (3) a simulation module 730.

Core module 710 implements a dynamic statistical model of globalmacroeconomic and financial risk factors. Its main function is togenerate forecasts of these economic and financial risk factors overdifferent time horizons. In an exemplary embodiment of capital marketsmodel 700, core module 710 implements a vector autoregressive model(VARM). In this embodiment, the VARM measures the interrelationship ofthe various risk factors with each other. This process begins with theVARM estimating relationships (more specifically, regression “betas”)among the system of risk factors based on historical data. The modulecan then be used to project the estimated relationships into the futureover any time horizon. An exemplary time horizon is ten years or longer.

Exemplary risk factors used by core module 710 include the following:

1. Global equity factors: These risk factors are the core drivers ofasset prices that are linked to the performance of both domestic andinternational stock markets.

2. Global fixed income factors: This group of risk factors includes theprimary ones that account for all of the stylized characteristics of theglobal term structure of interest rates or yield curves. The yield curveis considered a leading indicator of economic activity and inflationexpectations. International fixed income factors capture differences inlong-run inflation expectations between the U.S. bond market and majorforeign governments' bond markets, as well as differences in theexpected rate of real economic growth and monetary policy. It isimportant to note that the fixed income factors within core module 510permit the generation of a complete term structure of U.S. andinternational government bond yields (ranging from one month to 30 yearsin duration) for every model simulation at every future point in time.

3. Global economic factors: These risk factors capture current businessconditions, inflation shocks, and realized fluctuations in the globalbusiness cycle. Global economic and financial conditions are alsosummarized by commodity markets and foreign exchange markets indicators.For instance, currency risk factors help to explain differences inrealized returns between U.S. and unhedged international assets.

A benefit of core module 710 is that it models all of these exemplaryglobal financial and economic risk factors collectively and dynamicallyusing a regression-based framework. Consequently, each of these threerisk-factor groups is important to the accuracy of the forecasts ofcapital markets model 700.

Attribution module 720 relates the global economic and financial riskfactors to the returns of various asset classes, including internationalequities. The main function of attribution module 720 is to “map” thereturns of those asset classes to contemporaneous changes in the coreglobal risk factors. This mapping is based on observed historicalrelationships and is estimated using regression techniques.

For example, attribution module 720 may include the return differentialbetween unhedged international equities and domestic equities.Attribution module 720 captures some of the variability in this returndifferential based on patterns in certain global equity risk factors,changes in the shapes of the U.S. and international yield curves, andfluctuations in the value of the U.S. dollar, among other factors.

Simulation module 730 constructs scenarios for all risk factors andasset classes represented in modules 710 and 720. Simulation module 730creates a distribution of future returns, volatilities, and correlations740. In other words, it simulates a broad range of possible asset-returnoutcomes (as opposed to a single-point forecast). In this way,simulation module 730 and, therefore, capital markets model 700 accountfor the volatility of asset return forecasts.

As noted above, in an exemplary embodiment, capital markets model 700(specifically, simulation module 730) follows a regression-based MonteCarlo simulation method. In a further exemplary embodiment, the vectorautoregressive model of core module 710 is combined with a Monte Carloapproach.

As previously discussed, a regression-based Monte Carlo method is aneffective way to incorporate statistical uncertainty into forecasts. Asensible approach for dealing with statistical uncertainty is animportant piece of any analytical model, since the model needs toprovide investors with an adequate framework to assess unanticipatedrisks. In an exemplary embodiment, for each quarter in the forecasthorizon, capital markets model 700 simulates 10,000 scenarios, yieldinga complete distribution of potential future paths for the various riskfactors and asset returns at various forecast horizons.

FIG. 8 illustrates exemplary distributions of outcomes generated bysimulations of capital markets model 700 for selected asset classes(U.S. intermediate-term bonds and U.S. equities), in accordance with anexemplary embodiment of the invention. Although not illustrated in FIG.8, the outputs of simulations can also be summarized in reportscontaining key statistical characteristics of the simulated data. Anarray of summary statistics, including means, medians, and standarddeviations, may be tabulated for the various asset-class returns atvarious forecast horizons.

The execution of model 700 can be divided into two phases. A first phaseincludes the three modules as previously described: core module 710,attribution module 720, and simulation module 730. The final outcome ofthis first phase is the distributions of returns and volatilities 740 atthe level of each asset class. The second phase consists of combiningthe asset classes' simulations to create a full set of potentialinvestment portfolios to be considered. Thus, the simulation output frommodel 700 forms the basis for further analysis and simulations at theportfolio level. Outcomes are combined with exemplary objectives, risktolerance, and investment horizon of the fund.

It should be understood that some or all of the steps of methods 200 and300 and some or all of the functionality (modules) of capital marketsmodel 700 may be carried out by or with the assistance of a computer,including but not limited to automated processes for the following: (i)all or any portion of the fund management processes; (ii) issuing,buying, and selling of shares and underlying securities; (iii) receivingand transmitting transfers to and from financial institutions for thepurchase or shares or the distribution of periodic payments toshareholders; (iv) calculating the amount of periodic distributions; (v)computerized accounting; (vi) computerized receipt and storage ofshareholder data; (vii) computerized reporting to shareholders; and(viii) other computerized or automated functions comprised within themanagement, distribution, servicing, and other activities in connectionwith fund 100 and model 700. It should also be understood that theprogramming techniques necessary to automate such steps and modules bycomputer are well known in the art.

Although the invention is illustrated and described herein withreference to specific embodiments, the invention is not intended to belimited to the details shown. Rather, various modifications may be madein the details within the scope and range of equivalents of the claimsand without departing from the invention.

1-15. (canceled)
 16. A computer system for administering an investmentfund, the fund having: a plurality of shares; a managed distributionschedule comprising: a plurality of consecutive annual periods and anumber of payments to be provided during each of the consecutive annualperiods; an investment strategy for investing in assets to provide fundssufficient to meet the managed distribution schedule; the computersystem comprising: a computer; and programmed instructions in thecomputer for performing method steps comprising: calculating annuallythe value of each of the payments to be provided according to themanaged distribution schedule in a selected annual period; recordingissuance of at least one share to an investor in exchange for fundsreceived from the investor; investing the received funds according tothe investment strategy, thereby creating an investment portfolio;providing each of the payments to the investor during the selectedannual period, each of the payments in the selected annual period beingfunded from one or more sources selected from the group consisting of:net income of the assets of the investment portfolio, accumulatedundistributed net profits resulting from a sale of any asset of theinvestment portfolio excluding long-term capital gains, and return ofcapital; calculating an estimated contribution from each of the one ormore sources to the payment for each of the payments in the selectedannual period; designating, after all the payments in the selectedannual period have been provided, a first portion of the payments assourced from the net income and accumulated undistributed net profitsresulting from a sale of any asset of the investment portfolio excludinglong-term capital gains and a second portion of the payments as sourcedfrom the return of capital, the second portion corresponding to apercentage of the payments; and providing, to the extent the investmentfund has realized net long-term capital gains for the selected annualperiod, an additional distribution corresponding to the selected annualperiod, the additional distribution funded in part from the netlong-term capital gains and, in part, from return of capital, where thepart sourced from return of capital corresponds to a percentage of theadditional distribution, and the percentage of the additionaldistribution sourced from the return of capital is equal to thepercentage of the payments in the annual period sourced from the returnof capital, after taking all payments into account.
 17. The computersystem of claim 16, wherein the programmed instructions further compriseinstructions for: calculating, for each of the payments in the selectedannual period, the estimated contribution from each of the one or moresources to accumulated aggregated payments for the selected annualperiod, and reporting to the investor the estimated contribution fromeach of the one or more sources to the accumulated aggregated payments.18. The computer system of claim 16, wherein the programmed instructionsfurther comprise instructions for making the distribution, in part or inwhole, as a capital gain dividend.
 19. The computer system of claim 16,wherein the programmed instructions further comprise instructions formaking the additional distribution to include an amount equal to theabsolute value of the sum of (1) all losses realized in a portion of theselected annual period, (2) any other amount that may be recharacterizedas long-term capital gains realized by the fund in the selected annualperiod, and (3) an appropriate additional return of capital.
 20. Thecomputer system of claim 16, wherein each annual period of the paymentschedule comprises twelve monthly payments, the programmed instructionsfurther comprising instructions for making the additional distributionin a twelfth month of a selected annual period in the manageddistribution schedule or thereafter.
 21. The computer system of claim16, wherein the programmed instructions further comprise a step forreinvesting the annual distribution back into the fund.
 22. The computersystem of claim 16, wherein the managed distribution schedule comprisesa formula for calculating a value for each of the payments; and thevalue comprises 1/n^(th) of a predetermined percentage of a designatedvalue corresponding to one of the plurality of shares, wherein n equalsa number of payments and the designated value for at least one of theconsecutive annual periods comprises a trailing Net Asset Value (NAV);and the programmed instructions further comprise instructions forperforming method steps comprising: modeling a plurality of assetallocation strategies; plotting an efficient frontier of the modeledasset allocation strategies by probability of year-to-year decline andprobability of maintaining real or nominal distributions; receivinginstructions selecting an asset allocation strategy from the efficientfrontier as the investment strategy; and calculating the trailing NAV byaveraging NAV over a predetermined amount of time.
 23. The computersystem of claim 22, wherein each of the periods comprises a year andn=12.
 24. The computer system of claim 22, wherein: for a first year ofthe investment fund, the designated value comprises an initial per-sharevalue, and for a second year and subsequent years of the investmentfund, the designated value comprises a trailing NAV calculated using anaveraged daily per-share NAV over at least a portion of years of theinvestment fund prior to the second or subsequent years.
 25. Thecomputer system of claim 24, wherein for a third year of the investmentfund, the designated value comprises an averaged daily per-share NAVover at least a portion of the first and second years of the investmentfund.
 26. The computer system of claim 24, wherein for a fourth year orsubsequent years of the investment fund, the designated value comprisesan averaged daily per-share NAV over at least a portion of three yearsof the investment fund previous to the fourth or subsequent years. 27.The computer system of claim 22, wherein the programmed instructionsfurther comprise instructions for: periodically modeling historicalresults of asset classes and investments represented in the investmentportfolio and asset classes and investments not represented in theinvestment portfolio; receiving instructions adjusting the assetallocation strategy of the investment portfolio to a revised group ofasset classes and investments; and reinvesting or rebalancing theinvestment portfolio according to the adjusted asset allocationstrategy.
 28. The computer system of claim 22, wherein the programmedinstructions for modeling a plurality of asset allocation strategiesfurther comprise: defining a capital markets model comprising: a coremodule comprising a dynamic statistical model of global macroeconomicand financial risk factors, including global equity factors, globalfixed income factors, and global economic factors, and adapted togenerate a forecasts of such risk factors over a selected time horizon;an attribution module configured to map returns of selected assetclasses to contemporaneous changes in said risk factors based onobserved historical relationships and estimated using regressiontechniques; a simulation module configured to construct scenarios forsaid risk factors and said selected asset classes to create adistribution of future returns, volatilities and correlations;performing a plurality of a regression-based Monte Carlo simulations tomodel distributions of returns and volatilities for a plurality of assetclasses; and combining the plurality of simulations for the plurality ofasset classes to create a set of potential investment portfolios forplotting the efficient frontier.